Imagine a university called ic that is the monopoly in the market for economics degrees, with cost-function C(Q) = 25Q2 + 360. Imagine the inverse demand function for economics degrees is p(Q) = 400 − 25Q. The government has decided it would ensure that there is no deadweight loss in this market for economics degrees by setting a price cap on ic.

A. What would be the equilibrium price and equilibrium quantity if the government did not impose a price cap and ic was able to operate as an un-regulated monopoly?

B. At what optimal price should the government cap economics degree sales?

C. What are the new post-price cap equilibrium price and equilibrium quantity?

D. What is ic’s new profit at the equilibrium?

E. Prove that this new profit level is a global maximum.

F. Show the new equilibrium price and equilibrium quantity graphically. Include the original and regulated inverse demand curves, firm’s marginal revenue curve, and firm’s marginal cost curve.